UPDATE 2-Coventry Health reins in Kentucky costs, but profit off

Fri Oct 26, 2012 8:58am EDT

* Raises 2012 earnings forecast

* 3rd-quarter profit beats analysts' expectations

Oct 26 (Reuters) - Coventry Health Care Inc, a regional insurer being acquired by much larger competitor Aetna Inc, said on Friday it was reining in losses in its Kentucky business, but quarterly profit still fell.

Third-quarter profit, while lower, beat analysts' average forecast, and the company raised its full-year earnings guidance to the top of its previous range.

Excluding charges related to the Aetna deal, Coventry posted earnings of 81 cents per share, while analysts expected 73 cents, according to Thomson Reuters I/B/E/S.

Net income was $105 million, or 78 cents per share, down from $122 million, or 83 cents per share, a year earlier. Operating revenue rose to $3.46 billion from $2.98 billion.

Coventry, whose large government healthcare business attracted Aetna, has struggled with its Kentucky Medicaid program for the poor, where it continues to spend more money on healthcare than it takes in from premiums.

But it said it is raising premiums and that while the business is still challenging, it is improving.

Aetna on Thursday also beat analysts' profit expectations and forecast that Coventry would add 45 cents per share to earnings in 2014 and 90 cents per share in 2015. The acquisition is due to close in 2013.

Health insurance companies have been adjusting to healthcare reform from the Patient Protection and Affordable Care Act, which has increased the number of services that insurers must fully cover. The government has also made regular payment cuts for services and will introduce new taxes and fees.

Aetna announced plans in August to buy Coventry for $5.6 billion as part of a bet to expand more into government healthcare, which is expected to grow as the Affordable Care Act rolls into place.

Coventry forecast 2012 revenue of $14.06 billion to $14.07 billion. Analysts had been expecting $14.16 billion.

The company said it expects earnings of $3.25 to $3.30 per share for the year, including 6 cents of costs from the Aetna deal. Analysts were expecting $2.76.

The company previously forecast $3.10 to $3.30 per share.

MEDICARE AND MEDICAID

Coventry said it added 66,000 new members during the quarter for a total of 998,000 in its Medicaid business, and made gains in Nebraska, Virginia and Pennsylvania.

Its Medicare prescription drug program for older people grew by 51,000 members to 1.55 million members; Medicare Advantage, where people enroll with a private company for their government-paid benefits, increased by 3,000 members to 256,000.

Its commercial risk business fell by 30,000 members during the quarter to 1.49 million members.

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